Tax and switch

Gov. Deval Patrick's budget plan cuts a regressive tax and raises a flat one. This could use a little tweaking.

By CYNTHIA STEAD

capecodtimes.com

By CYNTHIA STEAD

Posted Feb. 21, 2013 at 2:00 AM

By CYNTHIA STEAD

Posted Feb. 21, 2013 at 2:00 AM

» Social News

Gov. Deval Patrick's budget plan cuts a regressive tax and raises a flat one. This could use a little tweaking.

Patrick's plan cuts the sales tax from 6.25 percent to 4.5 percent and dedicates all the proceeds to a public works fund. It also raises the income tax to 7 percent. Patrick said, "Under my plan, sales tax proceeds would be off limits for any other purpose."

Back in 2010, there was a petition drive to lower the sales tax rate. Citizens for Limited Taxation and others would have liked to abolish it, but even at that time 3 percent of our sales tax revenue was already pledged away as bond collateral for public works projects. By lowering the sales tax rate to 4.5 percent, the governor is proposing a de facto bond cap on public works projects. Old bonds will have to be retired before new ones can be issued.

The Patrick administration has already issued billions in bonds for transportation, environment, higher education, energy, life sciences, and on and on. Perhaps the governor regrets his decision to sweep all state transportation agencies into a single entity — MassDOT — which is answerable only to an independent appointed board with no direct oversight by either his office or the Legislature, just like the Mass Pike used to be. By creating a bond cap for them, it might be a way to control their spending, since they no longer have direct appropriation in the state budget.

The income tax part of his plan is a long-term Holy Grail for progressives who dislike the flat tax that doesn't punish the wealthy sufficiently. The only reason we don't have the more punitive progressive tax is that, 100 years ago, a different group of reformers not only got a flat income tax rate passed, they actually put it into the state Constitution. Raising the flat rate to 7 percent and coupling it with a larger credit based on the federal personal exemption creates a structure where those paying 7 percent of $50,000 won't be affected as much as those paying $500,000; doubling credit for the federal exemption might wipe out any tax liability for anyone making less than $100,000. While this is supposed to be paid for with the increased collections from the rich, the more likely result is an increase in the declaration of Florida legal residence — an already common phenomenon on Cape Cod.

Rather than raising rates and gerrymandering a progressive tax code, the governor has an easier target close to hand. Patrick has already done what 20 years of Republican governors could not — change the ridiculously generous benefit structure of state employees. The warning sounded when the contribution rate toward a state pension was increased, an early signal of unsustainability. Then, the contribution rate toward health insurance went from 15 percent to 20 percent. While this is an absurdly low contribution rate compared to the private sector where 50/50 is common, the outrage among state employees was fierce. There was also grousing about the lack of buyouts when agencies were consolidated and layoffs were forecast.

Under Republican governors, there were incentives like adding years of service to your record to enhance your pension. There were carrots to incentivize the "80 Percenters" (state employees who receive 80 percent of their final pay, the maximum retirement benefit allowed) to retire. Some refused to go as they regarded retirement as nothing but a 20 percent pay cut, as they weren't doing much at work anyway, and demanded an additional cash bonus as their carrot. But Patrick was all stick and no carrot. Instead of incentives, he offered punishment in the form of higher contribution rates if you didn't leave by a certain date.

While they are mostly good Democrats, Patrick isn't the most popular governor — so why not go all the way? Instead of the iffy return of raising rates, make state pensions subject to income tax. They can calculate to the penny how much that would bring in. Couple it with ending the income tax on unemployment to give the Legislature political cover, so people with no job don't write big checks to pay taxes on that "income." Billy Bulger (the retired Senate president and former president of UMass) having to pay Massachusetts income tax is the kind of tax hike we can all get behind.